Allianz Global Investors to Companies: Tie Pay to ESG…Or Else

Investment firm Allianz Global Investors, which manages over $500 billion of assets in Europe, announced its intent to vote against Directors of large-cap European companies that do not link ESG performance metrics to executive pay plans, beginning in the 2023 proxy season.  This warning comes on the heels of an already critical track record as Allianz voted against compensation resolutions in the U.S. 78% of the time in 2022 and 43% globally, citing proxy voting power “remains one of the most powerful tools we have to effect change.”

The announcement highlights the difficulties companies face as they respond to the differing desires of various investors that own their shares. Many investors, including State Street, have noted that their push for more disclosure of ESG metrics should not be interpreted to mean a push to tie those metrics to pay. However, Allianz feels strongly that pay and ESG should be linked, especially when it comes to climate.

Although focused on European companies for 2023, Allianz issued a new policy for 2024 in which they will vote against the Chair of the Sustainability Committee, the Strategy Committee or Board Chair of “high-emitting” companies with insufficient goals for net zero emissions and weak climate disclosures – including US firms. In fact, the investor specifically called out US companies with high emissions stating that they “are often less advanced than their European peers.”

Allianz also advised it would closely monitor pay elements not linked to performance and consider total compensation of executives in comparison to the full workforce along with correlations with organizations that experienced mass layoffs, restructuring or cutting dividends.